France, along with eight other countries have been downgraded
Germany, Holland, Finland, Luxembourg, Estonia, Ireland and Belgium remain unchanged
Italy reduced two notches to BBB+
Banks fail to reach deal for Greece to halve privately held debt burden
Analysts warn that Britain may still be downgraded
France was stripped of its coveted AAA credit rating last night in a crushing humiliation for President Nicolas Sarkozy.
The downgrade of Europe’s second largest economy – along with eight other Eurozone countries – came just a month after a bitter war of words broke out between Paris and London over the relative health of the French and British economies.
The row followed Prime Minister David Cameron’s historic decision to veto a European treaty to deal with the crisis affecting the euro.
Senior French politicians and the country’s top central banker insisted it should be Britain, not France, that should be stripped of the gold-plated AAA rating.
But last night, ratings agency Standard & Poor’s delivered its verdict – and it made dismal reading for Mr Sarkozy ahead of the French presidential election this spring.
The French downgrade by one notch to AA+ was met with muted glee in Downing Street and the Treasury, where officials have grown tired of Mr Sarkozy’s grandstanding over the economy and his attempts to undermine Britain at the EU summit before Christmas.
Allies of the Prime Minister and Chancellor refused to make public comments, but one described a ‘mood of quiet satisfaction’ that Britain’s strategy of announcing spending cuts to reassure the financial markets and the credit ratings agencies ‘has been vindicated’.
DOWNGRADED EUROZONE COUNTRIES
By one notch:
By two notches:
UNCHANGED EUROZONE COUNTRIES
COUNTRIES (GLOBALLY) STILL WITH AAA RATING
France has been rated AAA for the last 36 years and S&P’s decision is a major setback to the President’s hopes of re-election.
Analysts said the top-notch score was no longer appropriate due to the country’s towering debts, weak economy, and the crisis gripping the single currency.
The AAA rating – still held by the UK – allows countries to borrow cheaply on the international money markets and is seen as crucial to hopes of economic recovery.
Standard and Poor’s credit rating system
Higher interest rates for the government will push up the cost of borrowing for businesses and households and hamper economic growth.
The French downgrade cast fresh doubt over the firepower of the European Financial Stability Facility, the eurozone bailout fund.
It could make it harder for the EFSF to raise enough money to prop up Greece, Ireland and Portugal, and severely dent hopes that Italy and Spain can be protected.
Italy had its rating downgraded by two notches, to BBB+ as nine eurozone countries had their long-term rating cut to some degree.
S&P also downgraded Austria from AAA to AA+ but left the eurozone’s four other top-rated countries – Germany, the Netherlands, Finland and Luxembourg – unchanged, along with Estonia, Ireland and Belgium.
Other eurozone countries with lower credit ratings, including Spain and Italy, also face further downgrades.
The euro sank by around 1 per cent. It hit a new 16-month low against the dollar of $1.263 and dropped against the pound to just above 82p, the lowest level since September 2010.
Kathleen Brooks, a research director at currency firm Forex.com, said the downgrade could tip the balance in favour of Mr Sarkozy’s presidential rival, Socialist Francois Hollande.
‘It won’t do Sarkozy’s approval ratings any good and could give Hollande a boost,’ she said.
‘However, the markets may not react well to a Socialist French President, especially when France needs urgent structural economic reforms to bring its public finances under control.’
The French Government insisted the country could continue to meet its debt obligations.
‘France today is a safe investment, it can repay its debts and the news concerning our deficit is better than expected,’ said Budget minister Valerie Pecresse.
But the French ten-year bond yield – the benchmark measure of the interest rate investors demand to lend to the government – was stuck above 3 per cent last night.
By contrast it was below 2 per cent in Britain, which has emerged as a safe haven while the single currency crisis rages.
Analysts warned that France and Austria will not be the last AAA-rated countries to be downgraded, and that Britain could be hit. S&P downgraded the U.S. last summer.
Graham Neilson, of asset management firm Cairn Capital in London, said: ‘This is just the start.
‘There will be more to come and not just in Europe – there is simply still too much debt and not enough growth in developed economies.
‘The handbag-waving that took place last year between France and the UK may be settled with a UK downgrade later this year.
‘Ultimately this is a good thing. One of myriad reasons for this debt pile-up is the perception that developed Western government debt, particularly within the eurozone, is risk-free. It is not.’
The French and Austrian downgrades came as talks between Greece and its lenders over a possible 50 per cent write-off of its debts stalled.
Mr Sarkozy is only 2 per cent in front of far-Right nationalist leader Marine Le Pen as she bids to become French President, a poll shows today.
It puts Le Pen on 21.5 per cent and Sarkozy on 23.5. The front runner on 27 per cent is the Socialist candidate, Mr Hollande.
Time is running out for Greek government
Meanwhile, in Greece, banking representatives have warned time is running out for the Greek government, which today held a second day of talks with private bondholders on the crucial debt relief deal.
They said that if a deal to roughly halve its privately held debt burden – which would unlock more bailout funds – is not struck soon then the country could go bust.
That, it warned, would send shockwaves throughout the global economy. The negotiations came ahead of a visit on Monday by international inspectors monitoring Greece’s austerity program.
Greece’s Prime Minister Lucas Papademos
Greek Minister of Finance Evangelos Venizelos
Under pressure: Time is running out for Greek Prime Minister Lucas Papademos (left) and Finance Minister Evangelos Venizelos (right) to seal a crucial debt relief deal
The private debt deal is a key part of Greece’s second international bailout, worth a total 130 billion euro, which tops the initial 110 billion euro programme agreed in May 2010 to keep the country solvent after its borrowing costs soared to unreachable heights.
Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos met Charles Dallara and Jean Lemierre of global banking body the Institute of International Finance today.
After a first round of talks yesterday, a senior Greek finance ministry official said a deal could be struck by the end of next week, with a formal public offer coming at the beginning of February.
But a statement from the IIF warned that ‘some key areas remain unresolved’, and stressed that ‘time for reaching an agreement is running short.’
GERMANS SAY GREECE SHOULD NOT BE ALLOWED TO GO BANKRUPT
A poll in Germany today revealed half of its citizens did not believe Greece should be allowed to go bankrupt.
In contrast 41 per cent of Germans asked said other eurozone countries should let Greece go bust.
Only 15 per cent thought a Greek bankruptcy would be economically good for Germany, while 69 per cent believed it would be detrimental, the survey found.
The poll of 1,359 people was conducted for ZDF television between Tuesday and Thursday.
It gave a margin of error of plus or minus 3 points.
Frederic Oudea, chief executive of French bank Societe Generale, which holds a substantial amount of Greek debt, said negotiations could finish in the next few days and private creditors might end up accepting losses even larger than the target of 50 per cent.
He added: ‘But we have to be careful to maintain a balance because even if governments are saying that Greece will be a unique case, it will be instructive to investors.
‘It could become a ‘cautionary tale’ that could weigh on other countries.’
The talks are being complicated by the large number of actors involved in the broader bailout deal.
Not only the Greeks and the IIF, but the 17 countries that use the euro and the International Monetary Fund who will have to fund the payments to the private creditors also have to sign off.
That is complicating reaching an agreement on contentious issues, such as what interest Greece will have to pay on the new, lower-value bonds, according to people familiar with the talks.
The interest rate is key to determining the cost of the second bailout for Greece’s official creditors – the eurozone and the IMF.
In contrast to the face value of the bonds, which may not have to be repaid for many years if the restructuring works, the interest has to be paid from the very start.
One person briefed on the talks said there is disagreement among eurozone governments on how much interest Greece should pay – with some pushing for an interest rate as low as 3 per cent. That would be very little for bonds that are paid off in 20 to 30 years’ time.
The two-year-old Greek debt crisis, which followed revelations that Athens had been under-reporting key data on its bloated budget deficit and public debt, has shaken the eurozone and roiled financial markets.
Greece’s foreign ministry today said German Foreign Minister Guido Westerwelle will visit Athens on Sunday for talks with Foreign Minister Stavros Dimas. Westerwelle is also expected to meet with Papademos.
Germany is a key contributor to Greece’s rescue loan program. Athens will only continue to receive the loans if it satisfies inspectors from the European Union, the European Central Bank and the International Monetary Fund that its austerity program is working.
Talks: German Foreign Minister Guido Westerwelle (left) and Greek Foreign Minister Stavros Dimas (right) will be in Athens on Sunday for a meeting
But the 2011 budget deficit is expected to overshoot targets, while the pace of promised reforms remains sluggish. The inspectors, collectively known as the troika, are expected to arrive in Athens next Tuesday.
Over the past two years, Greece has slashed pensions and salaries while repeatedly hiking taxes, in a deeply unpopular program that has sparked a string of general strikes and often violent protests.
Last week, Papademos urged unions to accept further income losses, warning that bankruptcy and an ignominious exit from the euro could otherwise follow.
And today he told Parliament: ‘If the country does not manage to confront its debt crisis and the economy’s structural weaknesses, the consequences for standard of living of workers and pensioners will be dramatic.
Trouble: Fellow eurozone members Ireland and Portugal have also been forced to take international bailouts, with the threat of contagion rattling Europe’s economy and battering the euro
‘It is preferable to have open businesses with slightly lower wages … than closed businesses.’
He said some 38,000 businesses have closed since 2009. Unemployment hit 18.2 per cent in October, while the economy is heading for a fourth year of recession.
Papademos said, however, that it would be hard to further cut the lower end of salaries and pensions, and promised ‘tough negotiations’ with debt inspectors on labor reforms.
He added: ‘But our ability to negotiate is linked with … our own ability to address the sources of our problems.’
Far-reaching implications of downgrade
In the run-up to the last meeting of EU leaders on December 9, S&P said it was putting 15 of the eurozone’s nations on notice for a downgrade.
A downgrade of the eurozone’s triple A nations could have far-reaching implications, potentially complicating the ability of Europe’s bailout fund, the European Financial Stability
Facility, or EFSF, to provide support to struggling countries. France is a major contributor to the EFSF.
Rumours of the downgrades provide further evidence that investors in the markets remain jittery despite some positive signs over Europe’s debt crisis this week.
Auctions from the likes of Italy and Spain have gone smoothly while the European Central Bank’s chief noted signs of economic stabilization.
Louise Cooper, markets analyst at BGC Partners, said: ‘This rally is not built on solid foundations so this (selling) is indicative that underlying there’s not much confidence.’ Standard & Poor’s refused to comment on the speculation.
Nevertheless, the market response to the speculation was fairly savage across all markets.
In Europe, Germany’s DAX was down 1.7 per cent at 6,075 while the CAC-40 in France fell 1.4 per cent at 3,156. The FTSE 100 index of leading British shares was 1.3 per cent lower at 5,588.
Meanwhile, the euro was 1.4 per cent lower at $1.2644, its lowest level since September 2010.
In the U.S., the Dow Jones industrial average was 1.1 per cent lower at 12,330 while the broader Standard & Poor’s 500 index fell 1.2 per cent to 1,280.
Though the pickup in the stream of U.S. earnings will impact markets over the coming days and weeks, Europe’s debt crisis is likely to remain the main focus.
Europe’s crisis sprang from worries that countries had taken on more debt during boom years than they could pay back once their economies slowed.
Those concerns led investors to demand astronomically high yields or interest rates to lend money to countries like Greece, Ireland and Portugal, eventually forcing those three to seek bailout loans, rather than rely on market financing.
In recent months, it has seemed as if Italy would join that ignominious club, but that would present an insurmountable challenge: Italy’s economy dwarfs the three that have sought rescues and Europe can’t afford to bail it out.
[[[[ *** REPONSE ** ]]]
I loled when I saw this. Don’t be dishonest Duncan. This is simply Anglo outfits run by England retaliating against France for being scolded. This article writer needs to respect the
article readers abit more and stop being so narrowly communal. If England is bad in finances and France wants to unload a few hundred years of insults including the fall of Monarchy and
Napoleon’s defeat at Waterloo, France can jolly well do that without article writers propagandising and twisting facts like this. It’s retaliation by a non-neutral biased ‘rating agency’
(currency/fiat collusion agency). Come on Hugo, do an honest rewrite!
To be fair this is how the ‘Rating’ Agency should work :
RATING AGENCIES MAY RATE ALL REGIONS EXCEPT OWN REGION / MAY ONLY BE STAFFED WITH LOCAL ETHNICITIES for example :
Canada/Americas can rate all the below but noyt Canada/Americas :
North Atlantic Isles
Far East Asia
North Atlantic Isles (including England) can rate all the below but not North Atlantic Isles :
North Atlantic Isles
Far East Asia
AND to have a rating listed or changed, ALL ‘Rating Agencies’ but the local ‘Rating Agency’ of the nation to be rated MAY NOT participate in determining the rating.
As the adge goes, ‘Self praise is no praise.’ In this case an attack on another is simply a inverse version of self praise. This is a biased article, and World Finance Bodies of any self respect at all should consider the above suggestions of non-local based ratings staffed and headed entirely by local ethnicities. Otherwise as the English would say, this was just wanking (at France in this case) . . .
It is the Anglo tin plated ratings agencies that humiliated itself by these unethical actions not France that was humiliated.
AAA is for any nation which has reserves equivalent to GDP
AA is for any nation which has had ZERO DEBT for 10 years
A for any nation which has had ZERO DEBT for 3 years
B for any nation which has 100 million DEBT
B minus for any nation which has 1 billion DEBT
C for any nation which has 10 billion DEBT
C minus for any nation which has 100 billion DEBT
D for any nation which has had 1 trillion DEBT
D minus for any nation which has had 10 trillion DEBT
E for any nation which has DEBT which is unreturnable but they still retain autonomy
F for any nation which is a failed state from DEBT and falls under IMF type bodies in permanent debt slavery (methinks there are a few already . . . )
Tell it like it is you misrepresenting agencies! Overhaul the system, ANY nation with ANY DEBT does not deserve any **A** EVER!!!